(Alliance News) - Shares in Serica Energy PLC climbed on Monday after the company said it expects its planned investments to be eligible for tax savings, offsetting "a large element" of the UK's Energy Profits Levy.
Serica shares were 8.6% higher at 273.25 pence each in London on Monday afternoon.
However, the company noted its stock suffered a "significant fall" before and after the UK announced windfall tax measures on May 26. The stock had dropped by more than quarter throughout the month of May.
Among the measures announced by UK Chancellor Rishi Sunak in May includes a 25% surcharge on the "extraordinary profits" oil and gas companies are enjoying as a result of surging commodity prices.
Serica noted the levy only applies to profit made on or after May 26, so any prior bottom line boosts are "unaffected".
The measures also include incentives for firms such as Serica to reinvest.
Serica added: "Although fiscal instability is unwelcome in an industry with long lead times for capital expenditure, this new levy is part of a package that includes significant investment incentives designed to encourage companies like Serica to continue to reinvest profits. Serica already has an ongoing investment programme including the LWIV campaign and the North Eigg exploration well in 2022. Based on our current understanding of the Levy, this programme will qualify to benefit from these incentives with each GBP1 invested by Serica offering an overall tax saving of up to 91.25 pence."
Serica said its planned 2022 expenditure on the North Eigg well and the LWIV programme is roughly GBP60 million and it would be eligible for tax saving.
"This will offset a large element of the energy profits levy that would otherwise be payable on Serica's profits this year," the company added.
"Moreover, we are evaluating additional candidate projects designed to increase the productivity of the Bruce hub. Our strong cash balances with no borrowings, 100% of cash flows from our shares of the BKR assets and now enhanced investment incentives puts Serica in a strong position to continue to prosper as it adapts its strategy to changing circumstances."
Serica's operated North Sea assets contribute over 5% of the UK's gas output.
Serica added that in May, net production topped 28,000 barrels of oil equivalent per day, with the year to date figure in excess of 26,000 boepd.
By Eric Cunha; ericcunha@alliancenews.com
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Serica Energy (SQZ)